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A trial and error method for finding the root of an equation. This approach is often used to estimate the implied volatility of an option using the Black- Scholes option equation. Start with a reasonable estimate of volatility and calculate the theoretical option value. Then divide the difference between the theoretical value and the actual option price by the derivative of the Black- Scholes equation with respect to volatility evaluated at the estimated value for volatility, and reduce the prior estimate of volatility by this amount. Proceed in this fashion until the theoretical value and the actual price are sufficiently close.
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